If you’re worried about the prospect of a second stock market crash, I think the National Grid share price could keep your retirement plans on track.
National Grid (LSE: NG) is one of the UK’s top dividend stocks. It has been for years, long before the Covid-19 crash. It typically offers you an income of around 5% a year, and stands by its shareholder payouts. National Grid can do this because it has regulated income and little competition.
The FTSE 100 utility gives investors a solid stream of income to underpin their portfolios. It looks like a ‘buy’ at any time, but there are special reasons for seeking it out today.
National Grid’s role is to deliver electricity and gas to customers in the UK as well as parts of the US, reliably and efficiently. It doesn’t have to look over its shoulder at competitors, because there aren’t any. This means it gives you solid, long-term dividend income opportunities.
I’d buy-in to the National Grid share price today
While roughly half of all FTSE 100 companies have cut, or suspended, their dividends in the crisis, National Grid hasn’t. Earlier this month, it actually hiked its full-year payout by 2.6% to 48.57p, in line with its policy.
That was tremendous news for loyal investors, especially given cuts elsewhere. Right now, you can grab a yield of 5.03%. That’s more than 10 times the return on the average Cash ISA, which pays just 0.45%.
The National Grid share price did fall during the March crash, as management warned of a £400m rise in bad debts. Yet it expects minimal long-term material impact, and also reported a 1% increase in profits.
In a stock market crash, good companies typically fall with the bad, as investors panic and ditch everything. The National Grid share price was no exception. At one point, its shares were down by a quarter. That didn’t last though.
Its stock rallied quickly, as bargain hunters seized their chance. Today, National Grid’s shares trade just 7.5% below its January peak. That gives you a relatively low entry point, giving you a cushion from a second market crash.
If shares do crash again, that would give quick-thinking investors the opportunity to buy into the National Grid share price at an even more attractive valuation.
A top FTSE 100 income stock
Many investors forget that the £34bn FTSE 100 stock has US diversification too. That business is less secure, and faces competition. This increases National Grid’s risk profile slightly, but also its growth potential.
The group has demands on its purse. Running a transmission network requires massive capital investment, especially when making a shift to green energy. It still faces Covid-19 uncertainties. If the economy crashes, bad debts could rise.
Yet, if that does happen, the National Grid share price should get off relatively lightly, again. That explains its current premium valuation of 17 times earnings.
That’s a price worth paying for long-term investors looking to generate a passive income and retire early.
Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.
Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.
The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.
But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.
Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.